Gordhan names firms linked to R4bn Eskom overpayment, while NPA investigates former employees

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Public Enterprises Minister Pravin Gordhan has written to ANC Chief Whip Pemmy Majodina naming contractors responsible for R4-billion overspend on the construction of Eskom’s Kusile power plant. Several former employees, Gordhan also revealed, are being probed by the NPA.

The R4-billion overpayment was made to Stefanutti Stocks-Basil Read Joint Venture, ABB South Africa and Tubular Construction Projects. Each was paid R1-billion while a further R735-million went to Tenova Mining and Minerals SA.

Various site service contracts not within the scope of a Special Investigation Unit (SIU) probe totalled R180-million, Gordhan added.

Gordhan, in his note to Majodina, also sought to clear up a “misunderstanding” that Eskom had overpaid Tegeta R5-billion when in fact Eskom had a R5-billion claim against the company. Tegeta, which owns the Optimum coal mine, was owned by the Gupta family’s Oakbay.

In October 2018, when Optimum went into business rescue, Eskom had submitted a claim of approximately R5.5-billion.

The claim comprised R1.13-billion (1.1 million tons of coal) for September 2016 to January 2018 (pre-commencement of business rescue) and a further R4.4-billion (3.8 million tons of coal) for February 2018 to December 2018 ( after commencement of business rescue).

However, in December 2019, at a meeting of creditors, the quantum of Eskom’s claim had been challenged and Eskom’s claim was referred to an independent expert for determination.

At an arbitration hearing in March 2020 the majority of creditors (excluding Oakbay), Eskom and the business rescue practitioners reached an agreement that Eskom’s claim would be pegged at around R1.3-billion.

Gordhan’s response to Majodina, dated 6 July 2020, was prompted by communication from the Standing Committee on Appropriations (SCOA) in February 2020 requesting that Eskom provide a progress report on investigations into the overpayment of contractors.

An Eskom report attached to Gordhan’s letter indicated that the utility has referred several cases to the NPA and that many of the employees implicated in the inflated contracts had since resigned.

The report set out that ABB had been appointed through a closed procurement tender strategy to work on the Hitachi boiler and Alstom turbine combination used by the utility. Other bidders had been Siemens and Maul Bilfinger.

The ABB tender was higher than that of Siemens, “however, due to technical price adjustments made to the Siemens tender, ABB emerged as the cheaper option”.

The adjustments, which bumped Siemens out of the competition, the report found, had been used by Eskom’s then-management to award the contract to ABB.

Once work commenced, ABB had been issued “four major variation orders with no substantiation documentation or records”, the report found.

“These variation orders do not have all the requisite particulars to assess or verify the delays or costs claimed and were grossly inflated.” Display Adverts

The SIU was in the process of finalising an investigation into ABB and initial engagements had resulted in “ABB verbally offering to pay back approximately R240m”.

In August 2019 the SIU informed Eskom that it was investigating the Tenova contract for potential overpayment and confirmed two months later that evidence had been referred to the NPA.

With regard to the overpayment of Stefanutti Stocks Basil Read (SSBR) and Stefanutti Stocks Izazi JV (SSIJV), the Eskom report found the utility’s representative and contracts manager at the time (2015 to 2018) had made interim payments without the requisite substantiation.

Tenova had been contracted for “the complete design, procurement, delivery to site, erection, cold and hot commissioning of the Terrace Materials Handling Systems for Kusile Power Station Project”.

Tenova had not been able to complete the project and in 2016 Eskom and Tenova reached a R700-million settlement which had not followed correct contractual processes and had been inflated. Tenova had undertaken to investigate the matter and feedback is due this month.

Two of the contract managers involved in the deal had resigned in the face of disciplinary action based on findings by the SIU. The SIU was also considering institution civil proceedings to recover losses incurred by Eskom.

With regard to Tubular Construction and estimated overpayments of R450-million and R163-million and another estimated overpayment of R400-million to Alstom (now owned by General Electric) the Eskom report found it “remained questionable” that Eskom had received bang for its buck or whether the contractor had been entitled to additional money. Tubular had been contracted to work on the plant’s air-cooled condenser.

Tubular had also been awarded a contract in December 2012 for a wastewater treatment plant in December after a de-scoping exercise from the contract originally awarded to Mott MacDonald/PDNA.

“This contract and the circumstances around the de-scoping are also being investigated,” said the report.

With regard to the overpayment of Stefanutti Stocks Basil Read (SSBR) and Stefanutti Stocks Izazi JV (SSIJV), the Eskom report found the utility’s representative and contracts manager at the time (2015 to 2018) had made interim payments without the requisite substantiation.

This was done on the basis that they would conclude an overall “settlement agreement”.

Eskom was currently in “mutually agreed” discussions with SSBR about the process to determine the actual claim entitlement.

SSBR was contracted for the construction of 81 miscellaneous structures at Kusile as well as site finishes such as roads, paving and landscaping. Those implicated in the contract had resigned from Eskom while the contracts were still under investigation by the SIU.

Meanwhile, in June 2020, the SIU referred evidence in support of criminal charges against 11 people involved to the NPA.

The report noted that “once an Eskom employee resigns, he or she is outside Eskom’s scope, and the law enforcement agencies then need to take over the process”.

Eskom, the report added, was supporting law enforcement agencies in the pursuit of civil claims against former employees involved in all the contracts that have been investigated. DM

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